The Trend Towards Collaborative Procurement (4)

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The search for better procurement of construction in the UK dates back to the 1930s. Murray and Langford (2003) chronicle the major initiatives in this quest. From the mid- 1990s the departments of government responsible for construction have taken special interest in integration of the construction project supply chains (Ndekugri and Corbett, 2004).

The Levene (1995) report on construction procurement by government concluded: “Government is not yet getting all-round value for money, nor is it a best practice project owner. Even its best projects and systems have substantial room for improvement”. 

To bring about the desired improvement, the Treasury established in 1997 a Government Construction Clients Panel (GCCP) to provide a collective voice for departments responsible for construction procurement by government. This was followed by the establishment of a Construction Task Force led by Sir John Egan to advise the government on how the desired changes are to be brought about. The outcome of this initiative was the Rethinking Construction report (Egan, 1998), which advocated integration of design and construction through application of best supplychain management techniques from other sectors such as manufacturing and retail.

Advantages

1. It reduces the time and costs of separate insurance and disputes among project participants and their insurers as to who caused or should be liable for what
2. It is proper that the project owner, who ultimately pays for all the insurance, decides the protection it needs
3. It reduces gaps of exposure being left by the individual policies
4. Claiming under a single policy is more cost-effective because of reduced administration
5. The problem of excesses in individual policies does not arise There are fewer problems with the owner using or occupying part of the site of the works
6. The project owner has much greater control over maintenance of the cover and does not therefore have to worry about individual project team members not renewing their insurance policies
7. Health and safety outcomes are often improved by the engagement of expert risk management organisations on the project

Disadvantages

1. The premiums can be higher because of lack of knowledge of the identities of main project participants at the time the policies have to be negotiated
2. There may be delays in effecting the cover because some insurers insist on waiting until the identities of all potential co-insureds are known
3. Contractors, subcontractors and designers, because of its long-term presence in the market, are often in a better position to obtain more competitive insurance cover than a “once-in-a-lifetime” project owner
4. The policy excesses and exclusions in project insurance may have to be insured by the contractor and other participants at premiums marginally better than without project insurance
5. The contractor and other participants may still be answerable to the project owner and may price this risk
6. The advantages of well-established lines of communication between individual project participants, insurers and loss adjusters are lost

In 1999 the GCCP launched its “Achieving Excellence” initiative, which set targets for government departments to become “best practice” project owners in construction procurement. The initiative required the departments to use procurement strategies that integrate the supply chain as recommended in Egan’s Rethinking Construction report (Egan, 1998). It was stated that traditional forms of construction where design is completed before appointment of contractors and sub-contractors were wasteful and limited achievement of value for money and that they were to be used “only where there was a clear case that they will deliver better value for money than other procurement routes in terms of whole life costs and overall performance” (HM Treasury, 1999). A joint directive of HM Treasury and the Office of Government Commerce issued on 22 May 2000 announced that from 1 June 2000 all new works for the government must be procured using Project Finance Initiative (PFI), design and build or prime contracting. All maintenance work will be similarly procured after a further two years (HM Treasury and Office of Government Commerce, 2000). Some of the major private sector construction project owners, e.g. Sainsbury plc., Tesco plc. and British Airports Authority, are reported also to be embracing procurement strategies centred on greater collaboration within the supply chain (Ndekugri and Corbett, 2004). The current Government Construction Strategy (Cabinet Office, 2011) highlights building information modelling as a timely opportunity to entrench supply- chain integration through shared technology platforms to reduce transaction costs.


To cite this document:
Issaka Ndekugri, Hannah Daeche, Diwei Zhou, (2013) "The project insurance option in infrastructure procurement", Engineering, Construction and Architectural Management, Vol. 20 Issue: 3, pp.267-289, doi: 10.1108/09699981311324005